Foreign portfolio investors (FPIs) staged a sharp comeback in Indian financial services stocks in the second half of June, reversing months of persistent selling as confidence improved following the Reserve Bank of India’s measures to boost foreign-currency deposits.Overseas investors bought about $1.5 billion worth of financial services shares in the two weeks through June 30, after selling $1.2 billion in the first half of the month. The late-month buying left the sector with net inflows of $357 million in June, even as FPIs remained net sellers of Indian equities to the tune of $5.2 billion during the month, according to data from the National Securities Depository Ltd.
The reversal marks a notable shift after foreign investors pulled more than $12 billion from financial stocks between January and May, amid concerns over slowing credit growth and the Reserve Bank of India’s tighter oversight of the rupee market.
Besides financials, construction and consumer services also attracted strong foreign inflows in the second half of June, receiving $369 million and $326 million, respectively. In contrast, metals and mining and power were the biggest laggards, witnessing outflows of $462 million and $396 million.
Despite the heavy selling earlier this year, financials remain the largest sectoral holding for foreign investors, accounting for more than 30% of their Indian equity portfolios. Automobiles and capital goods follow, with portfolio weights of 7.3% and 7.5%, respectively.The buying momentum has extended into July. Foreign investors have purchased about $630 million worth of Indian shares so far this month after offloading roughly $27.4 billion between March and June.The renewed interest reflects expectations that the Reserve Bank of India’s recent incentives for banks to mobilise foreign-currency deposits will strengthen system liquidity. The measures are expected to attract more than $50 billion in fresh deposits, easing funding constraints that had weighed on loan growth and improving the earnings outlook for lenders.Analysts also expect Indian banks to report a strong June-quarter performance, supported by healthy retail credit growth. The anticipated improvement in deposit mobilisation is expected to support loan-to-deposit ratios and strengthen the sector’s funding profile.According to Suresh Ganapathy of Macquarie Capital, the impact of the recent FCNR deposit mobilisation is unlikely to be fully reflected in the June-quarter results, with most of the benefits expected to accrue between June and September. He expects the September quarter to be even stronger following the RBI’s latest regulatory measures. Ganapathy added that asset quality remains comfortable, geopolitical risks have eased, and bond yields are likely to normalise over the next 12 months.At the end of June, foreign investors held Indian equities worth about $726 billion, representing around 14% of India’s $5.1 trillion stock market, the world’s sixth largest.(Edited by : Sheersh Kapoor)First Published: Jul 7, 2026 5:48 PM IST
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